CAPITAL GAINS VERSUS DIVIDENDS

When it comes to making money from investments, most people seem to think of capital gains.  Who hasn't heard the stories of the Walmart and Microsoft millionaires?  Early investors who pick the right stocks can become fabulously wealthy from capital gains.  However, identifying the next Walmart or the next Microsoft is extremely difficult.  So getting rich from capital gains is a very iffy proposition in my opinion.

Dividends, on the other hand, are somewhat predictable.  You have the Dividend Aristocrats, stocks that have consistently paid and increased dividends for several years.  Usually big blue chip stocks, big name corporations with good balance sheets and predictable earnings.  Rather than trying to identify a $10 stock that's going to shoot up in price and split shares several times along the way, how much easier it is to simply buy shares of companies with a good track record of increasing dividend payouts.  This doesn't mean you miss out on capital gains.  On the contrary.  In my portfolio I'm currently holding stocks with anywhere from a small 4% increase to over 200% gains!  I could sell and take the profit, but I purchased these stocks for the dividend payouts, so I have no intention of selling as long as the dividends continue.

While I invest with the primary goal of building monthly cash flow from dividends, I do take advantage of capital gains when it seems to my advantage.  When my stake in UVE increased in price to around 250%, I took money off the table by selling just enough shares to take back all my original out of pocket investment.  I've kept the remaining shares and continue to collect and reinvest the dividends.  Dividend stocks do tend to increase in price, so I'll be looking for more opportunities to employ this same strategy with other holdings in my portfolio.  In the mean time, I'm very happy to collect and ever increasing stream of dividend income along the way.